Mercantile bank closure sparks concerns over depositors’ pay

On June 18, Bank of Uganda announced the closure of Mercantile Credit Bank, one of the country’s financial institutions.

Situated along Old Port Bell road, Mercantile bank becomes the latest indigenously-owned bank to fall, following the same path of Crane bank, Greenland bank, Teefe, Cooperative bank and the National Bank of Commerce, among others.

Two weeks after the closure of Mercantile bank, BOU released the State of the Economy report in which it indicated that the country is having a low and stable inflation environment and a stable exchange rate on account of a prudent monetary policy.

The report listed what it called a positive outlook in spite of existing near-term challenges which it described as “rising interest rates, subdued private sector credit, a persistent fiscal deficit and an under- financed current account deficit that is not fully financed by the financial account.”

Tellingly, the report expressed concern that there is a slowing growth of private sector credit, especially in the banking sector and linked it to a potential crowding out of the private sector. Charles Bbosa, an economist, reasons that the closure of Mercantile bank means that the country is conceding the financial sector to foreign banks, whose major objective is profit, which they repatriate back to their countries.

“With the closure of local banks, there is no way interest rates will come down. BOU is leading the crowding out of the private sector by closing banks. It should, therefore, first look at itself when it is diagnosing the challenges the economy is facing,” he says.

UNCERTAIN FATE OF DEPOSITORS

Just days before the closure of Mercantile bank, it ran adverts in the media assuring depositors who did save with it that it is solid and infallible because it is regulated by Bank of Uganda.

Many people, including unit trusts, had billions of shillings saved in the bank, but in the wake of the abrupt closure, the Deposit Protection Fund (DPF) has only paid those depositors with Shs 10m or less, leaving those that had a lot of money to wait for BOU’s next course of action.

Since the closure of Mercantile, the central bank has remained muted on when those who had more than Shs 10m will get their money so they can continue to operate their businesses.

THE PROCESS

A former top-level official from the defunct Crane bank who preferred anonymity says that for depositors that had amounts exceeding Shs 10m in Mercantile bank, the process will take longer and they may get a fraction of their deposits because the remaining funds will be paid out from the Mercantile bank’s available assets, prioritized according to the Bank of Uganda Act.

“So, expect depositors that had more than Shs 10m in the bank to receive partial payments in the coming months based on the liquidated assets available. As more assets are liquidated, additional payments will be made until a point where the depositors’ claims are fully settled or the Mercantile bank’s assets are exhausted,” he said.

TOUCHING TESTIMONIES

A top-level official from Lufula Sacco, which unites butchers operating at Meat Packers along the Old Port Bell road, told The Observer that they had billions saved with Mercantile bank. He said the individual owners of these savings are small businesses, which means that they are all about to pack to go back to the village as they don’t have access to credit anymore.

The Observer understands that UAP Old Mutual also had people’s savings there too and so are other unit trusts. Meanwhile, Steven Kigozi, a furniture dealer along Old Port Bell road, claims he had saved more than Shs 55m in the bank and the closure has hit him hard because his work has come to a standstill.

“I regret why we didn’t have any warning signs. Bank of Uganda knew the bank was on the verge of caving in but it never objected to the bank’s continued advertising and posturing as a liquid entity. To me, this makes BOU liable to pay depositors of Mercantile all of their money, not just the Shs 10m mentioned by DPF,” he said.

In the wake of closures of Crane bank and National Bank of Commerce, customers quickly got their money back. However, It is worth noting that in both incidents, the closed banks were taken over by another bank yet in the case of Mercantile bank, it was simply closed.

WIDER IMPLICATIONS

Several butchers at Meat Packers who lost money in the Mercantile bank closure, told The Observer that they will go back to their old habits of keeping money in their pillows or gumboots.

“We saved in this bank because it was the nearest to us but after this experience, how can I be sure that the next bank won’t be closed like this?” wondered Abdu-Rakim Semakula.

“Our plea to the Bank of Uganda governor is that he should rethink the policy and let Mercantile customers access their money like he did for Crane bank and National Bank of Commerce. That way, people will have confidence in the financial sector again but, most importantly, free up capital so that businesses don’t have to close and lead to unemployment and collapse of the entire economy,” he said.

Efforts to reach out to Dr Jan Tibamwenda, the BOU director of Communications, were futile as he did not respond to our repeated calls.